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Daily Pivots: (S1) 0.6526; (P) 0.6547; (R1) 0.6570; More...

AUD/USD is staying in consolidation above 0.6513 and intraday bias remains neutral. Further decline is expected as long as 55 4H EMA (now at 0.6608) holds. On the downside, sustained break of 61.8% retracement of 0.6361 to 0.6798 at 0.6528 will resume the fall from 0.6798 to 0.6361 support next.

In the bigger picture, overall, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern, with fall from 0.6798 as another falling leg. Deeper fall could be seen to the lower side of the range between 0.6169/6361. But strong support should be seen there to contain downside. For now, risk will stay on the downside as long as 0.6798 resistance holds, in case of rebound.

Daily Pivots: (S1) 153.25; (P) 153.80; (R1) 154.58; More...

USD/JPY's recovery from 151.93 extended higher today but stays below 155.36 support turned resistance. Intraday bias remains neutral and further decline is in favor. On the downside, decisive break of 151.89 resistance turned support will argue that large scale correction is underway to 148.66 fibonacci level. Nevertheless, break of 155.36 will turn bias back to the upside for stronger rebound to 55 D EMA (now at 157.06).

In the bigger picture, considering the depth and momentum of the current decline, 161.94 should be a medium term top already. Fall from there is seen as correcting the whole rise from 127.20 (2023 low) at least. Break of 151.89 will pave the way to 38.2% retracement of 127.20 to 161.94 at 148.66. Risk will now stay on the downside as long as 55 D EMA (now at 157.06) holds, in case of rebound.

Daily Pivots: (S1) 0.8831; (P) 0.8851; (R1) 0.8882; More…

USD/CHF is staying in consolidation above 0.8776 and intraday bias remains neutral. Further decline is expected as long as 0.8923 resistance holds. On the downside, break of 0.8776 will resume the fall from 0.9223 to 61.8% retracement of 0.8332 to 0.9223 at 0.8672 next. However, break of 0.8923 will turn bias back to the upside for stronger rebound instead.

In the bigger picture, with 0.9243 resistance intact, medium term outlook in USD/CHF is neutral at best. For now, more sideway trading is likely between 0.8332/9243. However, firm break of 0.9243 will indicate larger bullish trend reversal.

Daily Pivots: (S1) 1.2816; (P) 1.2852; (R1) 1.2898; More...

Intraday bias in GBP/USD stays on the downside as fall from 1.3043 is in progress. Decisive break of 55 D EMA (now at 1.2779) will suggest that rise from 1.2298 has completed with three waves up to 1.3043 Deeper fall would be seen to 1.2612 support and below. On the upside, above 1.2936 resistance will bring retest of 1.3043 resistance instead.

In the bigger picture, corrective pattern from 1.3141 medium term top (2023 high) could have completed with three waves to 1.2298 already. This will now remain the favored case as long as 1.2612 support holds. Firm break of 1.3141 will target 61.8% projection of 1.0351 (2022 low) to 1.3141 from 1.2298 at 1.4022. However, break of 1.2612 support argue that this corrective pattern is extending with another falling leg.

Markets

German Bunds outperformed US Treasuries at the calm start of what is going to be busy week. Yields in the country dipped between 2.9 (2-yr) and 5.3 bps (30-yr), continuing the recent yield correction. US yields added up to 1.6 bps at the front after trading lower for most of the day. Longer maturities finished up to 2.8 bps lower but were also well off intraday lows with the turnaround happening when US dealings were in full swing. Treasury announcing lower borrowing estimates for the running quarter than expected in April gave US Treasuries some last-minute support (see below). Stock markets struggled in Europe (-0.97% EuroStoxx50, wiping out all Friday gains) and, after opening higher (mostly tech) finished virtually unchanged in the US. Bund outperformance and stock underperformance gave the dollar an upper hand against most global peers, the euro in particular. EUR/USD dropped from 1.086 at the open to 1.082 into the close. The trade-weighted dollar index printed some decent gains though they were bigger earlier on the day. DXY rose from 104.31 to 104.56. JPY stabilized near recent highs at USD/JPY 154.02. Sterling’s large intraday swings ended up in the currency erasing much of end of last week’s losses against the euro. EUR/GBP fell from as high as 0.846 to 0.841. UK chancellor Reeves yesterday announced the results of the audit into UK public finances. She said the Labour government had inherited £21.9 bn of “unfunded and undisclosed” spending commitments. She then outlined a series of measures to address this, amounting to some £5.5bn in savings. That leaves a shortfall of more than £16bn that will need to be taken into account when Labour will release its first budget, scheduled for October 30.

Skipping a fairly uneventful Asian session, we dive right into the economic calendar of today. It is jampacked with JOLTS job vacancies and the Conference Board consumer confidence in the US. A series of GDP releases is due in the euro area with the European wide figure published today as well. France is typically one of the first major nations to report growth and already did so this morning. Q2 GDP expanded by 0.3%, topping the 0.2% estimate and coming on an upwardly revised 0.3% in Q1. France’s economy is now 1.1% larger than the same period last year. With Germany’s reading still due it’s too soon to call for upward risks to the European figure (expected at 0.2% q/q). But even if these would materialize, unless they are material, we don’t expect it to leave a major mark on the euro nor yields. There are also important inflation numbers due as well. The German and Spanish outcome may set the tone for the European number tomorrow. While we think that (front-end) European yields shouldn’t ease much more given what is priced in for the ECB (slightly below-neutral terminal rate), risks remain tilted towards a further easing in a daily perspective, especially if the technical support zones start cracking (eg. 2.6% in Germany’s 2-yr, 2.91% in swap). That makes EUR/USD’s downside vulnerable as well, more so if risk sentiment remains a sour one.

News & Views

The US Treasury yesterday announced its borrowing estimates for the July-September and October-December 2024 quarters. During the former, Treasury expects to borrow $740 bln, assuming an end-of-September cash balance of $850 bln. The borrowing estimate is $106 billion lower than announced in April 2024, largely due to lower Fed bond redemptions and a higher beginning-of-quarter cash balance. In October-December, Treasury anticipates to borrow $565 bln, assuming an end-of-December cash balance of $700 billion. The agency will later today announce additional details on the borrowing plans, including the distribution across maturities.

The British Retail Consortium price index defied expectations for a further drop towards stagnation by coming in at 0.2% y/y for July. The release matched June’s and was nevertheless the lowest since end 2021. In addition, prices dropped on a monthly basis by 0.1% following a slightly bigger 0.2% decline in June. Falling prices were driven by the non-food category (-0.2% m/m) whereas food prices still rose (+0.1%). The latter are up 2.3% y/y, compared to -0.9% for the non-food section.

Graphs

GE 10y yield

The ECB cut its key policy rates by 25 bps at the June policy meeting. A more bumpy inflation path in H2 2024, the EMU economy gradually regaining traction and the Fed’s higher for longer US strategy make follow-up moves difficult. Markets are coming to terms with that. Disappointing US and unconvincing EMU data, however, for now brings yields back to their post-French snap election low. The 2.34%-2.4% support zone is being revisited but looks solid.

US 10y yield

The Fed indicated that it needs more evidence to lower its policy rate. June dots suggested one move in 2024 and four next year. Disappointing ISM and back-to-back downward CPI surprises put the US money market back on more than two rate cuts this year (September/December). The US 10-yr yield tests the recent lows and the downside of the downward trend channel in the 4.2% area.

EUR/USD

EUR/USD tested the topside of the 1.06-1.09 range as the dollar lost interest rate support at stealth pace. Markets consider a September rate cut a done deal and only need confirmation from high-ranked Fed officials. In the meantime, the euro got rid of the (French) political risk premium. EUR/USD recently evolved back to a more neutral positioning but is holding up rather well despite ongoing poor EMU data.

EUR/GBP

Debate at the BoE is focused at the timing of rate cuts. May & June headline inflation returned to 2%, but core measures do not align a sustainable return to target soon. Some BoE members at the June meeting nevertheless appeared moving closer to a rate cut. Labour revealed a near £22bn of unfunded commitments, setting the stage for a painful Budget release on October 30. EUR/GBP 0.84 support is being tested.

The week kicked off on a mixed note. Equities in Europe fell, the major US indices were near flat, slightly positive for the S&P500 and Nasdaq, and slightly negative for the Dow Jones, as technology stocks extended a rebound into a second day while oil stocks retreated on a further selloff in crude oil.

US crude fell another 1% yesterday and is testing the $76 support to the downside this morning, while Brent crude extends losses below the $80pb psychological mark on desperation regarding the hard-to-revive Chinese growth and ample American supply. A decision from OPEC later this week to delay unwinding its supply restriction measures could limit losses, as the cartel has no interest in letting the price of a barrel sink further below the $80pb. Saudi for example needs oil prices to be within the $70/80pb range to balance its budget. Therefore I would be more surprise than not if OPEC kept their plan to unwind production cuts next quarter. As such, almost oversold conditions in crude suggest that the current levels could be interesting dip buying levels for those who bet that oil prices shouldn’t dive below the $75pb and 78pb levels for US and Brent crude respectively.

Earnings, earnings

Roundhill’s Magnificent 7 recovered another 1%. Tesla was the major boost among the 7 as its stock price jumped more than 5% thanks to a bullish call from Morgan Stanley. ON Semiconductor jumped 10% after reporting better-than-expected Q2 revenue and earnings. Remember, TSM also revealed strong earnings in the Q2, meaning that the Q2 performance of chip companies are looking good. Alas, ON may find it hard to clear a major Fibonacci resistance, the $80 per share, level which will allow it to return to the bullish consolidation zone at a time of rising worries and questions about whether AI investments will turn out to be as promising as people thought they would for companies that heavily invest in them. Nvidia retreated 1.30% at a session which was otherwise not too bad for the Big Tech companies. Even Apple closed slightly in the positive despite revealing that their AI models will miss the next product release, but will come soon after. Phew.

Anyway, Microsoft will reveal its Q2 earnings today, after the bell. Its data center growth will be largely in focus, and may meet and even beat expectations as Big Tech companies continue to spend big on AI tools. But strong results may not spark the same enthusiasm than in the previous quarters if companies like Facebook and Google don’t confirm AI’s positive impact on their revenues.

In non-tech, McDonald’s saw its share price jump almost 4% but announced that its sales fell for the first time since the end of 2020. The profit fell 12%. And the company’s CEO says that the value deals start resonate among low income groups – which may explain why the stock price jumped after weak results – but one or two value items won’t be enough to bring masses back to its restaurants. But McDonald’s results is another example – along with what the airlines say – that consumers are now seriously pushing back against rising prices and that points at taming inflationary pressures.

Rate decisions

Funnily, one place where McDonald’s saw its business do well was Japan, given a significant foreign tourist rush to the country on weak Japanese yen, as the USDJPY hit a 38-year low back in July. Nowadays, the yen is better bid on expectation that the Bank of Japan (BoJ) will start normalizing its policy. (I’m sorry there was a mistake in yesterday’s note as I said that the BoJ would announce QT and even lower rates. I meant that they will HIKE rates to normalize). QT and higher BoJ rates could give a further support to the yen, but nothing is less certain than what the BoJ will announce tomorrow. Risks prevail.

The Federal Reserve (Fed) decision on the other hand will certainly trigger no fireworks as Jerome Powell will likely hint at an upcoming September rate cut. The US dollar is on the rise before today’s JOLTS data and Wednesday’s Fed decision. The EURUSD sank below its 200-DMA ahead of a series of inflation, sentiment and growth data from the Eurozone, while pound traders' hearts are pounding toward the bearish side, with growing expectations that the Bank of England (BoE) could announce a rate cut as early as this Thursday.

Daily Pivots: (S1) 1.0793; (P) 1.0831; (R1) 1.0860; More.....

Intraday bias in EUR/USD remains on the downside for the moment. Sustained break of 55 D EMA (now at 1.0815) will argue that whole rebound from 1.0601 has completed with three waves up to 1.0947. Deeper decline should then be seen to 1.0601/0665 support zone next. Nevertheless, break of 1.0869 minor resistance will bring retest of 1.0947 instead.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern that's still be in progress. Break of 1.1138 resistance will be the first signal that rise from 0.9534 (2022 low) is ready to resume through 1.1274 (2023 high). However, break of 1.0665 support will extend the correction with another falling leg back towards 1.0447 support.

Dollar remains firm against European majors in relatively quiet trading today. Despite slightly better-than-expected GDP data from France, Euro has not gained significant support. While today's Eurozone GDP and tomorrow's CPI flash are important, they are unlikely to cause substantial movements in Euro. Traders' attention is firmly on tomorrow's FOMC rate decision and the accompanying press conference.

Meanwhile, Yen is broadly softer within its established near-term range as markets await BoJ meeting. It is anticipated that BoJ will lay out its plan to taper bond purchases, but there is uncertainty over whether an additional rate hike will be announced. This uncertainty keeping low volatility in Yen.

Swiss Franc follows Yen as the second weakest currency for the week so far, with Euro also underperforming. In contrast, Australian Dollar is currently the strongest, followed by New Zealand Dollar and then the greenback. However, with the exception of EUR/USD, all major pairs and crosses are currently trading within last week's range, indicating a lack of decisive movements ahead of key events.

Technically, EUR/GBP's sharp decline overnight affirms the case that price action from 0.8382 is merely a corrective move. It might be completed with three waves up to 0.8460 already. Break of 0.8382 should confirm larger up trend resumption. Meanwhile, even in case of another rise, outlook will continue to stay bearish as long as 0.8498 resistance holds.

In Asia, at the time of writing, Nikkei is down -0.09%. Hong Kong HSI is down -1.31%. China Shanghai SSE is down -0.71%. Singapore Strait Times is up 0.15%. Japan 10-year JGB yield is down -0.0187 at 1.010. Overnight, DOW fell -012%. S&P 500 rose 0.08%. NASDAQ rose 0.07%. 10-year yield fell -0.022 to 4.178.

French GDP exceeds expectations with 0.3% qoq growth in Q2

France's GDP grew by 0.3% qoq in Q2, surpassing the expected 0.2% growth. This positive performance was driven by a slight rebound in gross fixed capital formation , which increased by 0.1% after a decline of 0.4% in the previous quarter. Consequently, final domestic demand, excluding inventories, made a modest contribution to GDP growth, adding 0.1 percentage points compared to no contribution in Q1 2024.

Household consumption remained stable at 0.0%, following a slight decline of 0.1% in the first quarter. Foreign trade also contributed positively to GDP growth, adding 0.2 percentage points. This was supported by stable imports (0.0% after -0.3%) and dynamic exports, which grew by 0.6% following a 0.7% increase in Q1.

Lastly, changes in inventories had no impact on GDP growth, continuing the trend from the previous quarter with a neutral contribution of 0.0 points.

Japan's Unemployment Rate Falls to 2.5% in June, Job Availability Declines

Japan's unemployment rate fell to 2.5% in June, down from 2.6%, outperforming expectations of being unchanged at 2.6%.

The number of employed persons reached 68.22mmarking an increase of 370k compared to the same month last year. This represents the 23rd consecutive month of employment growth and the highest number since comparable records began in 1953. However, the number of unemployed persons also saw an increase, rising by 20k from the same month last year to 1.81m marking the third consecutive month of increase.

In separate data, the Ministry of Health, Labor and Welfare reported that the job availability ratio fell by 0.01 point from June to 1.23. This marks the third consecutive month of decline in the ratio, indicating that there are now 123 jobs available for every 100 job seekers, down slightly from previous months.

Looking ahead

Eurozone GDP is the main focus in European session while Swiss will release KOF economic barometer. Later in the day, US will release house price index and consumer confidence.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0793; (P) 1.0831; (R1) 1.0860; More.....

Intraday bias in EUR/USD remains on the downside for the moment. Sustained break of 55 D EMA (now at 1.0815) will argue that whole rebound from 1.0601 has completed with three waves up to 1.0947. Deeper decline should then be seen to 1.0601/0665 support zone next. Nevertheless, break of 1.0869 minor resistance will bring retest of 1.0947 instead.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern that's still be in progress. Break of 1.1138 resistance will be the first signal that rise from 0.9534 (2022 low) is ready to resume through 1.1274 (2023 high). However, break of 1.0665 support will extend the correction with another falling leg back towards 1.0447 support.

Economic Indicators Update

France's GDP grew by 0.3% qoq in Q2, surpassing the expected 0.2% growth. This positive performance was driven by a slight rebound in gross fixed capital formation , which increased by 0.1% after a decline of 0.4% in the previous quarter. Consequently, final domestic demand, excluding inventories, made a modest contribution to GDP growth, adding 0.1 percentage points compared to no contribution in Q1 2024.

Household consumption remained stable at 0.0%, following a slight decline of 0.1% in the first quarter. Foreign trade also contributed positively to GDP growth, adding 0.2 percentage points. This was supported by stable imports (0.0% after -0.3%) and dynamic exports, which grew by 0.6% following a 0.7% increase in Q1.

Lastly, changes in inventories had no impact on GDP growth, continuing the trend from the previous quarter with a neutral contribution of 0.0 points.

Full French GDP release here.

Short Term Elliott Wave View in E-Mini Dow Jones Futures (YM) suggests the trend should continue higher within the sequence started from April-2024 low as the part of daily sequence. It favors upside in wave 5 of (5) since 18-April, 2024 low, while dips remain above 40053 low. Since April-2024 low of (4), it placed 1 at 40213 high, 2 at 38111 low as dip pullback and 3 at 41672 high. It ended 4 as clear 3 swing zigzag pullback at 40053 low and favors upside in 5, which confirms above 41672 high to avoid any double correction, if breaks below 40053 low. Within 4 correction, it placed ((a)) at 40466 low, ((b)) at 40795 high and ((c)) at 40053 low, which missed the equal leg areas in 4 before resume higher.

Above 4 low, it placed ((i)) of 5 at 41051 high and favors corrective pullback in ((ii)), which should remain above 40053 low to extend higher in ((iii)). Within ((i)), it placed (i) at 40685 high, (ii) at 40158 low, (iii) at 41029 high, (iv) at 40863 low and finally (v) at 41051 high as ((i)). It placed (a) of ((ii)) at 40606 low and favors bounce in (b) before turning lower in (c) to finish ((ii)). As long as it stays above 40053 low, it should resume higher in 5 and can extend towards 42052 – 42671 area to finish the impulse started from April-2024 low before correcting lower. Alternatively, if it breaks below 40053 low, it can do double correction towards 39432 or lower levels before it should turn higher.

E-Mini Dow Jones Futures (YM_F) 60 Minutes Elliott Wave Chart

YM_F Elliott Wave Video

https://www.youtube.com/watch?v=Cf5Go4dUKsw